In a statement on social media, James said he was "devastated" and added that he "truly believed" he could help the team in Qatar. The 22-year-old was in a race against time to be fit after sustaining a knee injury against AC Milan last month.
James flew to Dubai to undergo a specialist recovery programme and had begun running outdoors at Chelsea's Cobham base but following regular dialogue between the club doctors and England's medical team, the right-back has been deemed too much of a fitness risk to take to Qatar.
"The minute I injured my knee, I knew the turnaround to make the World Cup would be tight, but I always felt it was possible," James said.
"I've worked harder than I ever thought I could to give myself the best chance of going and truly believed I could help the team.
"I appreciate there was risk on both sides but it was one I was willing to take."
Southgate will confirm his final selection on Thursday afternoon at St George's Park.
Chelsea boss Graham Potter said on Tuesday that there is no date pencilled in for James to return to club action.
"I think it is just how he responds," Potter said. "We don't want to rush anything. I certainly don't want to put any timescales on it, that's for the doctors and the physios."
Southgate has injury concerns elsewhere with Kyle Walker (groin) and Kalvin Phillips (shoulder) in a race to be fit, although there is more optimism that pair could have progressed enough to be included.
Aside from Walker and Phillips, Southgate will also make late calls on whether to call up Marcus Rashford and James Maddison. Rashford missed the last squad in September through injury but has seven goals in 17 appearances for Manchester United this season.
Maddison has more Premier League goal involvements (22) in the calendar year than any other Englishman aside from Harry Kane but has not been named in an England squad since 2019.